FTSE suffers worst day in 18 months
New Covid variant raises spectre of fresh lockdowns, sending global stocks and oil price tumbling
THE FTSE suffered its worst fall in nearly 18 months yesterday and stock markets plunged around the world owing to fears that a new variant of Covid would trigger a return to lockdowns and wreck the global recovery.
Britain’s blue-chip index dropped 3.6pc in its worst session since June last year when the initial crisis was in full swing, wiping £72bn off the value of Britain’s biggest companies. German markets closed down 4.2pc and France fell 4.8pc.
In the US, the S&P 500 tumbled 2.3pc in its biggest drop since February. Oil plunged amid concerns about a collapse in demand triggered by travel curbs and work-from-home orders, with Brent crude suffering a 11.5pc drop – its biggest decline since April last year.
Emmanuel Cau, head of European equity strategy at Barclays, said investors are focusing on whether the new variant – called omicron – had accumulated enough mutations to dodge the impact of vaccination. Omicron was detected for the first time earlier this week in Africa and has since been found as close to the UK as Belgium, with concerns growing that it is significantly more transmissible than even the fastspreading delta variant.
Mr Cau said: “What is key is to find out whether current vaccines remain effective against the variants, or not.”
The Cboe Vix index – also known as Wall Street’s “fear gauge” – posted its biggest one-day jump since January to touch its highest level in two months. Yields on US 10-year treasuries, a cornerstone of the financial system, fell 0.1 percentage points to 1.53pc as investors raced to safe havens. UK 10-year gilt yields fell 0.15 percentage points.
Bitcoin, the world’s top cryptocurrency, was down 7.5pc just after the London close – a drop that Oanda analyst Craig Erlam said “delivered a fatal blow to its safe-haven credentials”.
Traders also pared back bets that the Bank of England will put up interest rates next month, with markets pricing in a 70pc chance of a rise after previously predicting it as a near-certainty.
Speaking at a CBI event yesterday, the Bank’s chief economist Huw Pill said the ground had been prepared for a rate hike. However, he acknowledged: “We’ve laid out a plan here. But that plan always has to be conditional.”
The fall threatens to derail months of rises, which have propelled many stock markets to all-time highs, with the S&P rising more than 40pc above its precovid peak. Mr Cau said yesterday’s fall was “logical” given the long bull run.
Meanwhile, individual stocks also showed signs that investors are betting on another lockdown. The British Airways owner IAG and plane engine maker Rolls-royce were the top bluechip victims, dropping 14.9pc and 11.6pc respectively, while the hotel company Whitbread lost 9pc. Retail banks such as Natwest and Lloyds were stung by sharp falls because their performance suffers when the economy struggles. Ryanair and easyjet both clocked up falls of more than 10pc.
The biggest of the few FTSE 100 risers was Ocado, which climbed 4.6pc because its online grocery systems are in higherdemand if shops and restaurants are shut. In the US, the vaccine makers Moderna and Pfizer jumped more than 20pc and more than 6pc respectively as they will benefit if a new generation of jabs is needed.
Lockdown favourite Zoom spiked 6.8pc, and Netflix also rose.
Black Friday became “Red Friday” yesterday, at least on trading floors. The new South African super-variant – named “omicron” – tore through global markets, painting Bloomberg screens in every investment bank and broking house red as stocks, oil prices and currencies tumbled amid fears that the fragile recovery could be torpedoed.
The FTSE 100 sank nearly 4pc, its worst one-day percentage drop since September 2020.
A sell-off that began in Asia spread rapidly across financial markets. The pan-european Stoxx 600 also fell by nearly 4pc and the S&P 500 was down nearly 3pc as Europe closed.
Investors fled for the traditional safe havens of bonds, the yen and the dollar, while the pound fell to £1.33 against the dollar, its lowest level in 11 months, US crude was at a two-month low, and there was immediate speculation about whether interest rates would be held next month.
The markets are now pricing in a 60pc chance of no rise from the Bank of England.
One can understand the angst. As the Health Secretary, Sajid Javid, admitted, scientists are “deeply concerned” about the new B.1.1.529 “super-mutant” variant.
First identified in Botswana, it is already thought to be behind a surge in Covid cases in southern Africa over the past week.
It has more than 30 mutations, the most ever recorded and double the number found in the delta variant. It could be more vaccine resistant and transmissible than any previous version, triggering an “exponential” rise in cases in South Africa and other countries that it spreads to. And its so-called spike protein looks different from the version that vaccines were designed to target.
Bond king Bill Gross says investors
‘We should take comfort from the experience gained from dealing with delta’
have long been living in a “dreamland” of cheap, easy money pumped up by central banks. This has long been the great fear that haunts global markets
– a new highly lethal, more transmissible and vaccine resistant super-strain, with the capacity to set off another devastating wave around the world that derails the economic rebound from the pandemic.
With markets seemingly content to shrug off a fourth wave of infections sweeping across Europe, spiralling inflation and the prospect of higher interest rates, could this be the great shock that finally brings the seemingly infinite equity bull run to a juddering halt, taking the global economy with it?
It is far too early to make that call. But the panic serves as a reminder of just how fragile the recovery is. Growth has been stalling for some time but in Europe the outlook has deteriorated markedly after Germany missed growth targets and consumer confidence plunged.
With restrictions being tightened in the Continent’s largest economy, there are fears that growth could stagnate before the end of the year or even contract, in what would be a baptism of fire for Chancellor-elect Olaf Scholz.
Yet it is far too early to panic. Only 59 cases have actually been genetically sequenced in South Africa, Hong Kong and Botswana.
Of particular reassurance is how fast the UK and Europe have responded. A travel ban on flights coming from the five countries in southern Africa is the right thing to do.
The mind still boggles at how the Government allowed international travellers and tourists to pour through airports at the height of the pandemic. Travel restrictions buy time and help to slow the spread while scientists gain a better understanding.
But ministers must resist the urge to go further, locking down the borders and worse, forcing us back into lockdown. That should be avoided at all costs.
We should take great comfort from the experience that has been gained from dealing with the delta variant, the vaccine effort more generally, and the pipeline of new Covid medicines that the world’s scientists are working day and night to produce.
The speedy vaccination rollout, which has been mirrored by the rapid delivery of booster jabs for the most vulnerable, has propelled the country to a state of relative normality.
Manufacturing order books are at their highest level since records began in 1977 when James Callaghan was prime minister. Meanwhile confidence among shoppers is rising, with record retail sales expected for December, according to Enders Analysis. We cannot afford another Christmas washout.
As Prof James Naismith, director of the Rosalind Franklin Institute, told BBC Radio 4’s Today Programme: “It is bad news but not doomsday.”
The time is for cool heads and calm, not knee-jerk panic and a return to the hated draconian measures that crippled the economy once before.